Saturday, August 22, 2009

Higher Highs, Low Put/Call readings

NDX Higher Highs - Sell
On Friday the NASDAQ 100 made a 4th consecutive higher high. In the last decade we saw this setup 113 times. In 87 cases (or 78.8% of the time), the market closed lower within 3 days. Since 2007, there were 31 instances. In 25 cases (or 80.1%) , the market closed lower within 3 days. The table below lists these instances.

(Note: column '3day-' is the number of days it took for the market to close lower. if the market did not close lower within 3 days, '0' is displayed)
Ticker Date/Time Close 3Day- %Chg N1 %Chg N2 %Chg N3
^NDX 1/11/2007 1,834.86 3.00 0.54 0.41 -0.39
^NDX 3/20/2007 1,767.25 0.00 2.21 1.84 1.52
^NDX 4/9/2007 1,808.19 2.00 0.48 -0.56 0.29
^NDX 4/18/2007 1,832.39 0.00 0.00 0.74 0.97
^NDX 5/22/2007 1,916.45 1.00 -0.63 -2.18 -1.42
^NDX 6/1/2007 1,928.26 3.00 0.28 0.21 -0.70
^NDX 6/18/2007 1,944.37 1.00 -0.13 -1.14 -0.16
^NDX 7/2/2007 1,954.12 0.00 0.57 1.38 1.75
^NDX 7/17/2007 2,041.78 1.00 -0.19 0.55 -0.29
^NDX 8/22/2007 1,936.77 1.00 -0.25 1.27 0.55
^NDX 9/4/2007 2,020.51 1.00 -1.29 -1.08 -3.08
^NDX 9/26/2007 2,088.38 0.00 0.38 0.13 1.37
^NDX 10/10/2007 2,176.98 1.00 -1.66 0.05 -0.83
^NDX 10/30/2007 2,207.61 2.00 1.42 -0.48 0.28
^NDX 12/10/2007 2,134.88 1.00 -2.40 -1.57 -1.88
^NDX 12/26/2007 2,136.94 1.00 -1.44 -1.40 -2.43
^NDX 2/1/2008 1,855.27 1.00 -1.43 -4.41 -6.16
^NDX 2/13/2008 1,823.00 1.00 -1.94 -2.34 -3.19
^NDX 5/1/2008 1,980.44 2.00 0.07 -0.23 0.51
^NDX 5/15/2008 2,031.34 1.00 -0.00 -0.73 -1.51
^NDX 5/30/2008 2,032.57 1.00 -1.27 -1.76 -0.55
^NDX 7/31/2008 1,849.15 1.00 -1.22 -2.40 1.11
^NDX 8/8/2008 1,926.23 0.00 0.78 0.77 0.82
^NDX 10/31/2008 1,334.78 1.00 -0.00 3.27 -2.61
^NDX 12/8/2008 1,225.06 1.00 -1.03 -0.22 -3.64
^NDX 1/5/2009 1,262.52 2.00 0.95 -1.89 -0.79
^NDX 2/6/2009 1,277.49 2.00 0.33 -3.77 -3.95
^NDX 3/13/2009 1,168.52 1.00 -1.97 2.02 3.29
^NDX 5/19/2009 1,398.05 1.00 -0.31 -2.19 -2.49
^NDX 6/29/2009 1,483.83 1.00 -0.44 -0.17 -2.53
^NDX 7/14/2009 1,452.84 0.00 3.31 4.54 5.12
^NDX 8/21/2009 1,637.78 0.00 0.00 0.00 0.0
Put/Call ratio spikes to 2 year low
Put/Call data on Friday is showing a sharp spike to multi-year lows. CBOE put/call closed at .593 while the Equity Put/Call ratio closed at .393. The last time we saw such readings were on December 21st 2007 and April 10th 2007, respectively.
This is one of those data where time frame seems to be important. If we look at the equity put/call ratio for instance, there have been 138 cases where the P/C closed below .4 (the majority during 1997 through 2000 btw), but in only 62% of the cases has the S&P traded up higher within the next 3 days. However, if we look at data from 2001 to present, there were 14 occurrences, and in 12 cases, S&P closed higher lower within 3 days. My feeling is we should weigh recent history more, especially considering the P/C is a sentiment indicator similar to the VIX, which does not really have set buy/sell values that one can latch on to.
Ticker Date/Time Close e p/c 3Day- %Chg N1 %Chg N2 %Chg N3
^GSPC 4/18/2001 1,238.16 0.398 3.00 1.25 0.39 -1.11
^GSPC 5/21/2001 1,312.83 0.389 1.00 -0.26 -1.81 -1.50
^GSPC 6/28/2001 1,226.20 0.399 1.00 -0.15 0.86 0.67
^GSPC 1/24/2002 1,132.15 0.387 3.00 0.10 0.08 -2.78
^GSPC 8/16/2002 928.77 0.383 0.00 2.36 0.93 2.22
^GSPC 5/16/2003 944.30 0.399 1.00 -2.49 -2.60 -2.21
^GSPC 6/20/2003 995.69 0.357 1.00 -1.41 -1.23 -2.05
^GSPC 9/8/2003 1,031.64 0.379 1.00 -0.82 -2.01 -1.48
^GSPC 12/26/2003 1,095.89 0.376 0.00 1.24 1.25 1.46
^GSPC 1/6/2004 1,123.67 0.399 3.00 0.24 0.73 -0.16
^GSPC 1/16/2004 1,139.83 0.351 1.00 -0.09 0.68 0.36
^GSPC 1/24/2006 1,266.86 0.375 1.00 -0.17 0.55 1.33
^GSPC 4/10/2007 1,448.39 0.388 1.00 -0.66 -0.04 0.31
^GSPC 8/21/2009 1,026.13 0.393 0.00 0.00 0.00 0.00

2 comments:

Blue said...

Hi,

I got to your blog from a comment in MarketSci (http://marketsci.wordpress.com/2009/08/13/a-breakdown-of-the-quant-analysis-blogosphere-according-to-moi/#comments). The data you posted above raises a question. Assume one wants to take advantage of the apparent edge, and assume one fills a trade to go short. What strategy do you use to decide when to cover? For simplicity, assume one covers at the close of either day 1, day 2, or day 3.

As a simple illustration of the problem, on 4/10/07 it would have been best to cover at the close of the day 1. Yet on 9/8/03, even though one had a good profit at the end of Day 1, it would have been best to cover at the end of Day 2. By Day 3, some of that profit was gone.

The Small Fish said...

Hi blue..the studies are geared towards the very short term and are based on closing data. This particular study argues that we will close below friday's close at some point by wednesday or before. Therefore, the signals are closed on the first day they are fulfilled. Ideally, it implies any bounce higher than friday's close is shortable.

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